<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 31, 1995
COMMISSION FILE #0-12862
DEP CORPORATION
A DELAWARE CORPORATION - I.R.S. NO. 95-2040819
2101 EAST VIA ARADO, RANCHO DOMINGUEZ, CA 90220
(310) 604-0777
Indicate by check mark whether the company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during
the preceding 12 months (or for such shorter period that the company was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, exclusive of treasury stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class November 28, 1995
------------------------------------ -----------------
<S> <C>
CLASS A COMMON STOCK, $.01 PAR VALUE 3,117,059
CLASS B COMMON STOCK, $.01 PAR VALUE 3,134,081
</TABLE>
Index to Exhibits appears on page 14
1
<PAGE> 2
DEP CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
--------------------- ----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED CONDENSED BALANCE SHEETS - 3
October 31, 1995 and July 31, 1995
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - 4
Three Month Periods Ended
October 31, 1995 and 1994
CONSOLIDATED CONDENSED STATEMENTS OF RETAINED 5
EARNINGS AND ADDITIONAL PAID-IN CAPITAL -
Three Month Period Ended October 31, 1995
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - 6
Three Month Periods Ended
October 31, 1995 and 1994
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS 9
AND FINANCIAL CONDITION
Part II. Other Information 12
SIGNATURE 13
</TABLE>
2
<PAGE> 3
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 31, July 31,
ASSETS 1995 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................. $ 5,927,000 $ 4,611,000
Accounts receivable, net ............................................... 13,895,000 18,811,000
Inventories at lower of cost (first-in, first-out) or market:
Raw materials ........................................................ 4,921,000 4,233,000
Finished goods ....................................................... 9,262,000 8,838,000
------------ ------------
14,183,000 13,071,000
Income taxes receivable ................................................ 53,000 1,779,000
Other current assets ................................................... 2,950,000 2,463,000
------------ ------------
Total current assets ................................................. 37,008,000 40,735,000
Property and equipment, net ............................................. 15,073,000 15,423,000
Intangibles, net ........................................................ 33,725,000 34,156,000
Other assets ............................................................ 3,281,000 3,590,000
------------ ------------
$ 89,087,000 $ 93,904,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt ......................................... $ 59,425,000 $ 61,100,000
Accrued expenses ....................................................... 6,286,000 7,920,000
Accounts payable ....................................................... 6,013,000 7,397,000
------------ ------------
Total current liabilities ............................................ 71,724,000 76,417,000
Long-term debt, net of current portion .................................. 3,709,000 3,744,000
Other non-current liabilities ........................................... 2,792,000 2,516,000
Stockholders' equity:
Preferred stock, par value $.01; authorized
3,000,000 shares; none outstanding .................................. -- --
Class A common stock, par value $.01; authorized 14,000,000 shares:
issued and outstanding 3,232,559 at October 31, 1995 and
3,232,559 at July 31, 1995 ......................................... 32,000 32,000
Class B common stock, par value $.01; authorized 7,000,000 shares;
issued and outstanding 3,249,581 at October 31, 1995 and
3,243,340 at July 31, 1995 ......................................... 32,000 32,000
Additional paid-in capital ............................................ 12,141,000 12,126,000
Retained earnings (deficit) ........................................... (168,000) 215,000
Foreign currency translation adjustment ............................... (170,000) (173,000)
------------ ------------
Less: treasury stock, at cost, 115,500 shares each of 11,867,000 12,232,000
Class A and Class B common stock .................................... (1,005,000) (1,005,000)
------------ ------------
10,862,000 11,227,000
------------ ------------
$ 89,087,000 $ 93,904,000
============ ============
</TABLE>
See notes to consolidated condensed financial statements
3
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DEP CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1995 1994
------------ ------------
<S> <C> <C>
Net sales ..................................... $ 28,928,000 $ 31,341,000
Cost of sales ................................. 10,425,000 11,121,000
------------ ------------
Gross profit .................................. 18,503,000 20,220,000
Selling, general and administrative expenses .. 17,188,000 18,629,000
------------ ------------
Income from operations ........................ 1,315,000 1,591,000
Other expenses (income):
Interest, net ............................... 1,866,000 1,429,000
Other ....................................... (5,000) 97,000
------------ ------------
1,861,000 1,526,000
------------ ------------
Income (loss) before income taxes (credit) .... (546,000) 65,000
Income taxes (credit) ......................... (163,000) 31,000
------------ ------------
Net income (loss) ............................. $ (383,000) $ 34,000
============ ============
Net income (loss) per share ................... $ (0.06) $ 0.01
============ ============
Weighted average shares outstanding ........... 6,248,051 6,241,723
============ ============
</TABLE>
See notes to consolidated condensed financial statements
4
<PAGE> 5
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF RETAINED EARNINGS
AND ADDITIONAL PAID-IN CAPITAL
THREE MONTHS ENDED OCTOBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Retained
Paid-in Capital Earnings
--------------- --------
<S> <C> <C>
Balance at beginning of period................................... $12,126,000 $ 215,000
Net loss......................................................... -- (383,000)
Stock issued under the stock target ownership plan............... 15,000 --
----------- ---------
Balance at end of period......................................... $12,141,000 $(168,000)
=========== =========
</TABLE>
See notes to consolidated condensed financial statements
5
<PAGE> 6
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
OPERATING ACTIVITIES: 1995 1994
----------- -----------
<S> <C> <C>
Net income (loss) ..................................... $ (383,000) $ 34,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ....................... 1,213,000 1,398,000
Other ............................................... 355,000 (278,000)
Changes in operating assets and liabilities:
Accounts receivable ................................ 4,838,000 1,630,000
Inventories ........................................ (1,112,000) (573,000)
Income taxes receivable ............................ 1,741,000 2,853,000
Other assets ....................................... (492,000) 956,000
Accounts payable ................................... (1,384,000) (1,183,000)
Accrued expenses ................................... (1,644,000) (835,000)
----------- -----------
Net cash provided by operating activities ............. 3,132,000 4,002,000
INVESTING ACTIVITIES:
Purchases of property and equipment ................... (77,000) (145,000)
Sale of trademark ..................................... -- 435,000
Other, net ............................................ (46,000) (515,000)
----------- -----------
Net cash used in investing activities ................. (123,000) (225,000)
FINANCING ACTIVITIES:
Decrease in lines of credit and long-term debt,
including change in current portion ................ (1,710,000) (3,459,000)
Other ................................................. 15,000 (11,000)
----------- -----------
Net cash used in financing activities .................. (1,695,000) (3,470,000)
----------- -----------
Increase in cash and cash equivalents .................. 1,314,000 307,000
Effect of exchange rate changes on cash ................ 2,000 17,000
Cash and cash equivalents at beginning of period ....... 4,611,000 947,000
----------- -----------
Cash and cash equivalents at end of period ............. $ 5,927,000 $ 1,271,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ........................................... $ 1,866,000 $ 1,614,000
=========== ===========
Income tax (refunds) ............................... $(1,970,000) $(2,396,000)
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements
6
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DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1:
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements, which have been prepared assuming the Company will
continue as a going concern (see Note 4), contain all adjustments (consisting of
only normal recurring accruals) necessary to fairly present the financial
position as of October 31, 1995, and the results of operations and the
statements of cash flows for the three month periods ended October 31, 1995 and
1994.
The results of operations for the three month period ended October 31, 1995, are
not necessarily indicative of the results to be expected for any other period or
for the full year.
These quarterly financial statements should be read in conjunction with the
Company's audited financial statements contained in the annual report on Form
10-K for the year ended July 31, 1995.
Note 2:
Provisions for certain expenses, including coupon redemption and cooperative
advertising, are based on full year assumptions. Such expenses are charged to
operations in the year incurred and are included in the accompanying
consolidated condensed financial statements either equally among the four fiscal
quarters or based upon estimated annual sales.
Note 3:
Net income (loss) per share amounts are computed based on the weighted average
number of shares outstanding plus the shares that would be outstanding assuming
exercise of stock options, when dilutive, which are considered common stock
equivalents. The number of shares that would be issued upon the exercise of
stock options has been reduced by the number of shares that could have been
purchased from the proceeds at the average market price of the Company's common
stock.
Note 4:
As of October 31, 1995 and July 31, 1995, the current portion of long-term debt
included $59,291,000 and $60,969,000, respectively, related to the Revolving
Credit and Term Loan Agreement, as amended (the "Bank Facility"), that the
Company entered into on August 6, 1993, with a group of seven banks (the "Bank
Group"), in conjunction with the acquisition of the Agree and Halsa brands. On
November 3, 1995, the Company and the Bank Group entered into a Fifth Amendment
to the Bank Facility effective as of October 30, 1995 (the "Fifth Amendment")
which provides, among other things, for the termination of the Bank Facility on
7
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December 30, 1996, a decrease in working capital commitment to $25,000,000 from
$28,000,000, an increase in interest rates, and lower scheduled quarterly term
loan payments through April 1, 1996. The $9,567,000 payment originally due on
December 29, 1995, has been reduced to $500,000 with $8,300,000 due on April 15,
1996 and the remainder due at maturity. However, based on current estimates of
cash flow, management does not believe it will have sufficient cash to pay the
$8,300,000 due on April 15, 1996. Accordingly, the entire amount outstanding
under the Bank Facility has been classified as a current liability.
8
<PAGE> 9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the three months ended October 31, 1995 were $28,928,000 compared
to $31,341,000 for the comparable period in the prior year. The decrease was
primarily due to lower international sales and lower domestic sales of oral care
and certain discontinued hair care products.
Consolidated hair care net sales for the three months ended October 31, 1995
decreased 6% from the comparable period of the prior year. The decline was
primarily related to lower international net sales of Agree, lower sales by the
Company's joint venture in China and lower sales of certain hair care products
which were discontinued in fiscal 1995. Aggregate net sales of Agree and Halsa
for the three months ended October 31, 1995 were approximately $6,100,000
compared to $6,500,000 in the prior year.
Skin care net sales decreased 7% in the three month period ended October 31,
1995 compared to the same period of the prior year. Volume growth in the Natures
Family brand was more than offset by volume decreases in Porcelana and Cuticura.
Oral care net sales, which decreased 17% in the first quarter compared to the
same period of the prior year, continued to be impacted by competitive new
products.
Domestic net sales of hair care products for the three months ended October 31,
1995 decreased by slightly less than 3% compared to the prior year. The
continued decline in net sales of Halsa was more than offset by increased sales
resulting from the recent re-launch of Agree. Aggregate domestic net sales of
Agree and Halsa were approximately $3,800,000 compared to $3,600,000 in the
prior year. Excluding net sales of certain hair care products discontinued in
fiscal 1995, domestic hair care sales for the three months ended October 31,
1995, approximated sales for the comparable prior period.
Net sales of international hair care products for the three months ended
October 31, 1995 decreased by 22% compared to the prior year primarily as a
result of lower net sales of Agree and lower sales by the Company's joint
venture in China.
Gross profit for the three months ended October 31, 1995 and 1994 was
$18,503,000 and $20,220,000, respectively, and as a percentage of net sales was
64% and 65%, respectively. The decrease in absolute dollars was the result of
lower sales volume while the decrease in the percentage was the result of a
lower proportion of higher margin products being sold.
Selling, general and administrative expenses ("SG&A") for the three months ended
October 31, 1995 decreased to $17,188,000 from $18,629,000 in the year ago
period; however, as a percentage of net sales, SG&A was 59% in both periods. The
decrease in dollars was the result of decreases in sales volume, advertising,
promotional spending and amortization expense.
9
<PAGE> 10
For the three month period ended October 31, 1995 net other expense was
$1,861,000 compared to $1,526,000 for the same period in the prior year. The
increase was due to higher interest expense. Approximately $200,000 of such
increase related to a payment required by the Bank Group as a result of the
Company's noncompliance with certain financial covenants under its Bank
Facility. The remainder related to higher effective interest rates the Company
is subject to under the amended Bank Facility. Due to the increased effective
interest rate under the amended Bank Facility, interest expense for future
quarters is expected to continue to be greater than that incurred in the prior
periods.
The Company provides interim period tax allocations based on its estimated
annual effective tax rate. For the three months ended October 31, 1995 and 1994,
the estimated annual effective tax rate was 30% and 48%, respectively. The
decrease in the Company's effective tax rate is primarily due to the write-down
of the Agree and Halsa assets in fiscal 1995.
For the three month period ended October 31, 1995, the Company recorded a net
loss of $383,000, or $.06 per share, compared to net income of $34,000, or $.01
per share, in the comparable period of the prior year. The loss in the first
quarter primarily reflects the impact of lower sales and higher interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
All amounts due under the Bank Facility, including the balance due on
December 30, 1996, have been classified as current debt. Due to such
reclassification, the Company had a working capital deficiency of $34,716,000
in the three month period ended October 31, 1995 compared to $35,682,000 at
July 31, 1995. Working capital was impacted by reductions in accounts
receivable and income taxes receivable which were offset in part by increases
in inventory and decreases in current portion of long-term debt, accrued
expenses and accounts payable. The decrease in income taxes receivable results
from the receipt of income tax refunds relating to the prior fiscal year. The
decrease in accounts receivable and increased inventory is due to lower sales
volume in the current quarter compared to the fourth quarter of fiscal year
1995. The current portion of long-term debt decreased due to repayment of
principal of the Term Loan and reduction in balances under the Working Capital
Facility. The decrease in accruals is primarily the result of the timing of
promotional events, while the reduction in accounts payable relates to the
timing and recognition of other SG&A and inventory expenses.
Since the inception of the Bank Facility in August 1993, the Company has
consistently made timely payment to the Bank Group of all principal and interest
due under the Bank Facility. In light of the Company's current projected
earnings and cash flow, management believes the Company has the financial
resources to maintain its current level of operations until the April 15, 1996
principal payment is due under the Fifth Amendment. However, cash generated from
operations alone will not be sufficient to pay the $8,300,000 on April 15, 1996,
or the balance due on December 30, 1996. As a result, the Company is evaluating
alternatives which, if successful, would result in the payment, the refinancing,
or the restructuring of the Bank Facility. The Company has retained legal
counsel specializing in restructurings to render advice
10
<PAGE> 11
regarding alternatives available to the Company. In addition, the Company has
retained Donaldson, Lufkin & Jenrette Securities Corporation to assist it in
exploring strategic alternatives which include, among other things, a business
combination, sale of assets, strategic investment in the Company or a
refinancing of the Bank Facility. There can be no assurance that the Company
will be successful in its attempt to consummate any of the alternatives
described above.
Under the Bank Facility the Company currently has a revolving Working Capital
Facility of $25,000,000. As of October 31, 1995 the Company had drawn down all
of such balance, which accounts for the large cash and cash equivalent balances
as of October 31, 1995. As of November 28, 1995, the Company reduced the balance
outstanding under the Working Capital Facility by approximately $6,300,000,
which amount remains available under the Working Capital Facility to fund
operations.
11
<PAGE> 12
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On November 2, 1995, the Company's common stock was transferred from
the Nasdaq National Market to the Nasdaq SmallCap Market as a result
of the Company's non-compliance with the minimum net tangible assets
requirement for continued listing on the National Market. The
Company's application to list its common stock on the Pacific Stock
Exchange was rejected as a result of the Company's net tangible asset
position. The Company is investigating listing its common stock on
other U.S. exchanges. However, the Company may not qualify for
listing on any additional exchange as a result of its net tangible
asset position.
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits
11 Statement re: Computation of per share earnings
27 Financial Data Schedule
b. Reports
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DEP CORPORATION
Date: December 12, 1995 /s/ Grant W. Johnson
-----------------------------------
Grant W. Johnson
Senior Vice President,
Principal Financial Officer and
Chief Accounting Officer
13
<PAGE> 14
EXHIBIT INDEX
DESCRIPTION EXHIBIT NO.
- ----------- -----------
Computation of Per Share Earnings 11
Financial Data Schedule 27
14
<PAGE> 1
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
----------------------
1995 1994
------- -------
<S> <C> <C>
Net income (loss) .......................... $ (383) $ 34
======= =======
Shares:
Weighted average shares outstanding ....... 6,248 6,242
Shares issuable from assumed exercise of
outstanding options ..................... -- --
------- -------
Adjusted weighted average shares outstanding 6,248 6,242
======= =======
Income (loss) per share .................... $ (0.06) $ 0.01
======= =======
</TABLE>
Exhibit 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1995, AND CONSOLIDATED
STATEMENT OF INCOME FOR THE QUARTER THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH (B) FINANCIAL STAEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 5,927,000
<SECURITIES> 0
<RECEIVABLES> 13,895,000<F1>
<ALLOWANCES> 0
<INVENTORY> 14,183,000
<CURRENT-ASSETS> 37,008,000
<PP&E> 15,073,000<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 89,087,000
<CURRENT-LIABILITIES> 71,724,000
<BONDS> 3,709,000
<COMMON> 64,000<F3>
0
0
<OTHER-SE> 10,798,000
<TOTAL-LIABILITY-AND-EQUITY> 89,087,000
<SALES> 28,928,000
<TOTAL-REVENUES> 0
<CGS> 10,425,000
<TOTAL-COSTS> 27,613,000
<OTHER-EXPENSES> (5,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,866,000
<INCOME-PRETAX> (546,000)
<INCOME-TAX> (163,000)
<INCOME-CONTINUING> (383,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (383,000)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
<FN>
<F1>ACCOUNTS RECEIVABLE NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>PROPERTY, PLANT AND EQUIPMENT NET OF ACCUMULATED DEPRECIATION.
<F3>COMMON STOCK INCLUDES BOTH CLASS A AND CLASS B COMMON STOCK.
</FN>
</TABLE>
